Economists of all views join the debate on whether a new economic collapse is inevitable in advanced capitalist countries. The protracted collapse of neoliberalism, the economic collapse that emerged with the COVID pandemic and the pandemic regime, the deterioration in supply chains, the evolution of ‘globalization’ into a kind of ‘regionalization’ have not yet deterred central banks from the neoliberal creed of ‘fighting inflation’ and tight monetary policy.
There is less and less hope that a rate hike in the US can be handled without causing a recession. We talked about the future of the world economy with economist Michael Roberts, who argues in his books and articles that what is seen as the crisis of neoliberalism is actually the crisis of capitalist production. Roberts, who worked for many years in the City of London, which is considered the financial center of the world, and who, in his own words, “observed the machinations of global capitalism in the dragon’s den”, explains the reason for the stagnation in the developed capitalist countries with the law of the tendency of the rate of profit to fall, both theoretically and empirically.
According to him, the cause of the crisis and stagnation is not the Keynesian lack of aggregate demand or the neoclassical over-expansion of credit, but the fall in capitalist productivity and the decline in profitability. The tendency of the rate of profit to fall also reduces the appetite for investment, and in capitalist economies where investment does not expand, employment and consumption decrease. For Roberts, this is the ‘normal’ cycle of capitalist production. The way out of this slump is the devaluation of certain capitals through capitalist ‘creative destruction.’ It can be caused by war, or by other things. It is possible to think that the new economic boom Roberts expects from global capitalism resembles the exit from the depression period that lasted from 1873 to the end of the century.
You make a distinction between depression and recession in your book Long Depression How It Happened, Why It Happened, and What Happens Next: ‘Every depression has come when the cycle in clusters of innovation have matured and have become “saturated”; when world production and commodity prices enter a downward phase, namely, that inflation is slowing and turns into deflation; when the cycle of construction and infrastructure investment has slumped; and above all, when the cycle of profitability is in its downward phase.’ You also describe our era as ‘Long Depression.’ Do you think we are living now in a looming recession within a depression in the long term?
My book, The Long Depression, argues that capitalism is a system of production for profit that does not proceed in a harmonious way, gradually improving the living standards for us all. On the contrary, it proceeds in cycles of booms and slumps, accompanied by growing inequalities and exploitation. Booms in production, employment and incomes are interrupted by severe contractions, where millions lose their jobs, companies go bankrupt and incomes fall. That is the ‘normal’ character of capitalist production.
However, sometimes, the contradiction between improving living standards and the profits accruing to the owners of the means of production becomes so great that capitalist economies stay locked in a depression. A depression is when growth in production, investment, employment and profitability do not return to previous levels in any recovery after a slump.
That happened for nearly 20 years in the late 19th century in the major economies of Europe and America; then in the Great Depression of the 1930s, and I would argue now since 2008-9. The decade of the 2010s was one of such a long depression. Economies remain depressed in the sense of low investment growth, poor productivity growth and above all low profitability on average in most sectors and most countries.
Per your calculations, the profit rate in advanced capitalist countries is still below the 2007 levels. You always dismiss neoclassical or Keynesian explanations (excessive credit, government intervention, lack of effective demand, etc.) for the economic crisis and explain it with low profit rates and low investment appetite. Do you think is it possible for a sharp devalorization of capital via some ‘external’ factor, such as war or COVID-19-style pandemic?
Normally in the capitalist boom and slump cycle, capitalism goes into a slump when profitability falls so low that total profits contract and weaker capitals go bankrupt, causing a cascade of contraction in investment and employment. But that means the stronger capitals survive and can gain market share from those that have collapsed while costs of production have fallen with the shedding of the workforce and new technologies can be applied. So profitability rises and a new boom commences. You can call this process of ‘creative destruction’ of previous capital values in order to start again anew. However, in this Long Depression it has been much more difficult to revive profitability, particularly as the monetary and fiscal policies of governments have deliberately propped up the weaker capitals and the financial sector with cheap money and subsidies. So no ‘creative destruction’ has taken place, so far. That’s why Keynesian policy solutions based on increased government spending and monetarist solutions of ‘cheap money’ have not worked in restoring economies to previous growth rates.
Yes, it could be an external factor that changes that. The Great Depression of the 1930s only came to an end with a world war where governments stepped in to take over and run the economy for the war effort. A major war and arms race globally in the next decade could be such a factor again – but at the grotesque expense of millions of lives and even the destruction of the planet. I think more likely that such a new wave for capitalism through a sustained revival of capitalism will only be possible after a series of severe slumps have ‘destroyed’ capital values enough to achieve a revival. That is what happened in the late 19th century depression of 1873-95. After several slumps, a boom period ensued but eventually leading up to a world war in 1914.
‘A NEW SLUMP WILL OCCUR IN 2023’
You have been writing that in advanced countries a new recession is imminent. It also seems that inflation has reached its peak, especially energy prices, and now a moderation is on the way. Do recent GDP and inflation data support your expectations?
Yes, all the indicators on output, investment and profits suggest a new slump in 2023, only three years after the COVID pandemic slump of 2020, which was deepest and had the widest effect globally of any slump in over 100 years. A new slump will inevitably reduce the rate of inflation of prices for goods and services because workers will lose their jobs and companies will close so that investment and consumption demand will fall. However, the continuing weakness of supply globally that had been evident even before the pandemic began. That means that inflation rates will not return to the very low levels we saw before 2020. Indeed, 2023 and 2024 will be years of what might be called ‘stagflation’, with contracting output but still rising prices. And the Long Depression will continue.
In connection with the above question, can the so-called green transformation in advanced capitalist countries be an exit for the whole system, with new privatization and appropriation for the transnational capital?
Investment in green technology and renewable energy will not be enough to compensate for the general collapse of profits and investment in the wider economy. Indeed, capitalist investment in saving the planet by switching from fossil fuel production to carbon free production is woefully inadequate. ‘Green capitalism’ is no escape route. The green transformation of the planet requires public ownership of finance and key industries and a global plan for investment in the environment.
After the Russo-Ukrainian War and the rise of the People’s Republic of China, do you see in capitalism’s future configuration new regulative institutions such as the World Bank and the IMF?
The World Bank and the IMF, along with other international financial agencies, were designed to ensure the continuance of the existing international order of dominance by the US and its other imperialist allies to control trade, investment and profits globally. That has been the case since their formation under the Bretton Woods meeting in 1944.
But US hegemony and the dollar are now under threat from rising economic powers like China, and also from weaker powers like Russia, Saudi Arabia, India or Turkey which do not go along with the declared interests of the Western imperialist alliance. This means the emergence of several geopolitical blocs. This is a dangerous development. As the US hegemony weakens, the American ruling class is intensifying its efforts to curb and contain resisting countries like Russia and above all, to weaken and destroy the main enemy of Western imperialism, China. This is the great geo-political struggle of the 21st century.
‘CREATIVE DESTRUCTION IS NEEDED FOR A NEW CAPITALIST EXPANSION’
Neoliberalism’s protracted demise since the 2007-8 crisis is stamped as the “death of finance” or revival of the ‘real sector.’ The US government’s new Inflation Reduction Act subsidies new electric cars which are produced in North America. Do you think capitalism is going into a new era with a new industrial growth, where fictitious capital is swept under the carpet?
In short, no. The US government fiscal measures are really quite small relative to the task of sustaining economic growth both in the US and elsewhere. The main producer of electric cars globally is actually China. And electric cars are not the great solution to providing productive investment that is profitable enough for corporations and banks to switch from speculating in ‘fictitious capital’ i.e. bonds, stocks and other financial assets. A new era of capitalist expansion as in 1950-73 or 1982-97 will not happen without substantial ‘creative destruction’ first of old unproductive capital so that raises profitability sufficiently to invest in these new technologies.
Do you think capitalist production does not need an external stimulus? For example, Indian economists Prabhat and Utsa Patnaik claim, in their recent book Capital and Imperialism: Theory, History, and the Present, that capitalist production needs an external world, such as a colonial one, to work. You also refuse Ernest Mandel’s claim that the down phase in Kondratiev cycles is endogenous to capitalist production but the up phase is exogenous is. How can you explain such denominations monopoly capitalism, imperialism, and fascism? Can there be a phase that capitalist production can not solve its inherited problems via ‘economic’ ways and apply ‘non-economic’ ways?
I don’t subscribe to the view that capitalist crises are the result of the lack of demand in the major economies and capitalism has only continued to accumulate by relying on the consumption and labor force of what was colonial Global South i.e. externally to modern capitalist economies. Regular and recurring crises are the result of internal contradictions between productivity and profitability. Imperialism extracts huge profits from the economies of the Global South, but crises still continue in the advanced capitalist economies.
Yes, sometimes exogenous factors can turn a down phase in capitalism into an upward phase (as with WW2 at the end of the Great Depression). But a down phase can also become an up phase if higher profitability is sustained after a series of slumps, as in the late 19th century.
